Monuments of sloth

Infrastructure is touted as the cure for the slowdown, but project delays are going to cost the Government over Rs 39,000 crore.

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Nivedita Mukherjee

July 23, 2009

ISSUE DATE: August 3, 2009

UPDATED: July 30, 2009 16:23 IST

It is the favourite mantra of policy makers, politicians and prescribing economists. And they chant it relentlessly as an antidote to recession and a supplement to boost growth. Tragically though, for all the chanting of the infrastructure mantra the Government has not been able to change the religion of sloth on the ground.

About 423 projects of the 925 in the Central sector cutting across critical sectors are facing huge delays and cost overruns attributed to delays in land acquisition and clearances, slow award of contracts and poor performance of contractors. This means five out of 10 Central projects are facing delays in years and adding crores in cost overruns, according to the Ministry of Statistics and Programme Implementation (MoSPI).

Approval for many projects dates back to the early 1990s, while some have been hanging since 1984. The Government will have to spend about Rs 39,000 crore more due to the delay in commissioning of almost half of the Central projects costing Rs 20 crore and above, according to Minister of Statistics and Programme Implementation Sriprakash Jaiswal. This despite a slew of special committees set up since 2004 just to ensure time-bound creation of world class infrastructure.

Of course, project overruns are business as usual in a country where timely delivery of anything is an exception rather than the rule. But these are increasingly under close scrutiny now that India is looking at a quantum jump in the development of infrastructure and increasing related spending from 4 to 9 per cent of GDP.

If these projects are completed on time, they will act as a stimulus to growth by cutting down the ruralurban gap, bringing agriculture and industry closer to each other and generating prosperity. Adequate, costeffective and quality infrastructure delivered without delay is the best way to beat the meltdown that has pulled India"s growth back to 6.5 per cent from 9 per cent, says Gajendra Haldea, adviser, Planning Commission.

That, however, can only happen when attitudes change, says Haldea who blames the resistance from bureaucracy for the delays in meeting project deadlines. "Babus running a fiefdom, exercising controls over approvals and processes related to infrastructure projects are loath to let go," rues Haldea.

He is not exaggerating. In the National Highways Authority of India, for instance, projects falling under public-private partnerships (PPP) are handled by engineers who can devote little time to such projects after handling cash contracts for 10 hours. These PPPs involve big companies, big money, and demand careful attention to structuring of projects. All this needs a dedicated staff to handle matters, but there is no effort to build the strength. No wonder, as Haldea says, projects lag behind.

It is not just the babus and their archaic mindsets. The Government has not yet changed policies related to land acquisition. Surface Transport Minister Kamal Nath called that an impediment to road infrastructure at the recent CII summit on highways. Since a project can only start after 80 per cent of the land has been acquired, the agitations and court cases kicked off by the people displaced from the land lead to huge time and cost overruns. Not that private projects are luckier. For all their modern management methods, even an Arcelor Mittal cannot push ahead with its proposed steel plants in the face of local ire over land purchases.

Nath is not the only one complaining. The problem haunts power projects too, like the 60 MW Tuirial Hydro Electric Project held up by locals demanding higher compensation for their crop which is likely to be affected by the project. What makes matters worse is the absence of a system to fast-track litigation and dispose of such cases, says Atul Punj, chairman, Punj Lloyd Limited, a major infrastructure player.

Even with new policies and systems in place, there is no certainty whether a project will see the light of day, because of the long list of clearances that projects need before they can get off the ground. In India, even after more than 15 years of economic liberalisation, it still takes 170 clearances to set up a power project.

The overall time to get all clearances could stretch from three to five years, of which a year or two alone would be needed for water and environment. Minister of State for Power Bharatsinh Solanki says, "We have taken steps for timely completion of projects. A nodal officer in the Central Electricity Authority has been appointed for each project to keep track of the construction. A panel of independent consultants has been set up for field visits, review and reporting on the projects under implementation." But these measures are yet to prove their effectiveness on the ground.

The scenario in the ports sector is no better. The delay in these projects with approvals dating back to 1998 is in the range of 29-94 months. Gujarat"s Kandla Port Trust has suffered a delay of eight years in creating additional facilities for handling crude oil simply because of environmental clearance. If land and clearances set back road and power projects, shoddy project management plays havoc with railway projects.

According to MoSPI, the most serious problem in railways is the sanction of a large number of projects without completing essential pre-project activities like survey, detailed cost estimates and financial tie-ups. Often projects are included in the Railway Budget without proper appraisal. This results in a large number of projects remaining non-starters. Agrees Vinayak Chatterjee, chairman of CII"s infrastructure committee, "India, by and large, has policy framework in place, but there is a lack of project management capabilities."

It is not that solutions are hard to find. Almost every government has fashioned its own version of speedy clearances"from setting up of a viability gap funding to creating the India Infrastructure Finance Company Limited (IIFCL) for facilitating long-term loans to allowing IIFCL to raise Rs 10,000 crore to refinance bank lending for infrastructure. But now that lending conditions have become more conducive for picking up projects from the shelf, finances have dried up under the effect of the ongoing downturn, spike in interest rates and cost of borrowing.

"A big worry behind slow implementation in road and highway projects is availability of finance," says Montek Singh Ahluwalia, deputy chairman, Planning Commission. Investors are not actively putting in money in road projects, confirms Brahm Dutt, secretary, Surface Transport. "The period September 2008 to April 2009 saw a drastic cut in investment, slowing down offtake of projects. The irony now is that India can roll out projects, but will there be investors?" wonders Dutt.

There are no answers yet, but alarm bells over 9 per cent growth becoming a remote affair have started ringing afresh. The Planning Commission is set to look into involvement of multiple ministries while keeping an open eye on the funding of infrastructure by pension funds.

Union Minister of Shipping G.K. Vasan says, "To attract and encourage private sector investment in the port sector, we have finalised a model request for qualification, request for proposal and model concession agreement to ensure uniformity and transparency in the bid process." A single window clearance system for port projects, says Assocham, would ensure substantial reduction in their gestation period. The dividends are clearly manifold. It is now for politicians to seize the initiative. It is both an imperative and an opportunity.

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